Uganda oil refinery project hits another snag as framework agreement expires

Uganda oil refinery project hits another snag as framework agreement expires

Written by URN

Uganda President Yoweri Museveni

Plans to construct Uganda’s $5 billion crude oil refinery have hit yet another snag following the expiry of the project framework agreement (PFA) between the government and an American-led Albertine Graben Energy Consortium (AGRC).

The PFA officially ended last month June 30 without the conclusion of other agreements to make the much-needed final investment decision. There has not been any official communication from the government or AGRC even after the two sides and the ministry of Finance officials met on Thursday as the agreement lapsed.

It appears that the five-year negotiation around the refinery has not yielded tangible results despite certain waivers granted by President Yoweri Museveni as sweeteners to the investors.

Sources within government say that it appears that the project has hit a snag after the AGRC failed to abide by the deadline as per the agreement. Negotiations have been on since April 2018 when the PFA was signed. AGRC later rebranded as Albertine Graben Energy Consortium (AGEC)

According to the PFA, the Albertine Graben Refinery Consortium (AGRC) was to develop 60,000 barrels of oil per day (bopd) greenfield refinery in Hoima. The minister of Energy and Minerals, Ruth Nankabirwa had at the end of May, said that negotiations with the refinery consortium on the various agreements were going on with a view of having the FID taken by 30th June.

The negotiations have been spearheaded by the government through the Energy ministry together with Uganda National Oil Company (UNOC). The private developers, AGEC have a 60 per cent shareholding in the refinery project. AGEC is comprised of Saipem S.p.A Italy, YAATRA, Lionworks from Mauritius, and Nuovo Pignone. 

UNOC holds Uganda’s refinery interest at 40 per cent through the Uganda Refinery Holding Company. According to sources, the two sides were supposed to conclude negotiations on the implementation agreement (IA), shareholders agreement (SHA), and crude oil supply agreement (CSA).

The failure to conclude those agreements and the failure by AGEC to take an FID raises questions about how the refinery project is to be pushed forward. The other question is about the relationship between the government and AGEC with the expiry of the PFA.

An official at the ministry of Energy who asked for anonymity said that the agreement has technically ended and that would either require an extension or fresh negotiations with an interested investor may commence from square one. Efforts to speak to sector minister, Ruth Nankabirwa for comment were futile because her known mobile telephone was switched off.

Eng Irene Batebe, the permanent secretary at the ministry did answer her phone while officials at UNOC remained tight-lipped even after confirming that the PFA with AGEC had technically ended. An official at UNOC who has been part of the talks by virtue of seniority said they had nothing to communicate about AGEC and the refinery.

“All we can say is that for us we she all continue pushing the project ahead for FID,” said the officer who indicated that the official communication about the consortium will be communicated in due course. 

The source added that a meeting was held on Thursday at the ministry of Energy in an effort to find a solution to the standoff as the deadline approached. It was reportedly attended by officials from the ministry of Finance, the Attorney General’s chambers, and AGEC representatives.

The source could not confirm whether AGEC officials were at the last minute trying to ask for more time through an extension of the project framework agreement. Apart from the extension of the PFA, there is the question of ownership of the data regarding the Front-End Engineering Design (FEED) for the refinery project undertaken by AGEC in 2021.

The FEED for the refinery to be located at Kabaale in Buseruka sub-county, Hoima district was in July 2022 paving for negotiations that have just stalled with the end of PFA. AGEC also conducted and completed the Environmental Social Impact Studies (ESIA) for the project.

Sources indicate that Museveni had waived the fees which have been paid by the AGEC as part of his efforts to fast-track the construction of the refinery so that it is operational when King Fisher oil well operated by CNOOC and TotalEnergies’ Tilenga projects begin pumping oil out of the ground.  

King Fisher and Tilenga are already spudding or drilling part of their wells as they race toward the first oil in 2025. The refinery with a capacity to process 30,000 to 60,000 barrels per day of crude was supposed to retain part of the crude oil from the Albertine for locally consumed fuels.

The rest will then be pumped through the East Africa Crude Oil Pipeline Project for export. By the end of 2022, some officials at the ministry of Energy acknowledged that the refinery was unlikely to be completed by mid-July 2025. They said it would instead most likely be completed in 2027.

The award of the refinery to the American-backed AGEC had initially caused excitement at the US Embassy in Kampala. The then US ambassador Deborah Malac attended the signing of the agreement. There are questions about why Americans don’t seem enthusiastic as they were in 2018.

In December 2022, President Museveni indicated at the Final Investment Decision (FID) for a refinery estimated at $4.5 billion would be undertaken by the East African Energy Security Transition Investment project.

At the time, the president was attending the US Africa Leader’s Summit at whose sidelines he met the Albertine Graben Energy Consortium partners. AGEC representatives were led by Rajakumari Jandhyala, president and CEO of YAATRA Africa.

This would be the second time that the refinery project is failing to take off. In February 2015, the government selected a consortium led by Russia’s RT Global Resources LLC and South Korea’s SK Engineering & Construction Co. to build and operate the refinery.

The negotiation about the PFA with the Russian-led investors failed leading to a new bidding process that had the American-led AGRC selected as a preferred bidder.      

Source The Observer.

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